401K retirement plans obtained its title from the section related to the tax code that governs it. This investment system was introduced during the 1980s to act as a supplement to pension funds. It is a retirement savings option which is sponsored by employers.
In the past, employees were usually offered the option to join pension funds. These were normally managed by the employer and a regular, periodic amount would be paid to the employee during their retirement years. This option may still be accessible to those who are employed by government agencies and the unions. The main reason for the move to 401K plans was the costs of maintaining pension funds.
The option of 401K plans allows workers to save and invest a portion of their wages before it is taxed. Tax is levied when the money is withdrawn from the plan. The worker has some form of control over the investment aspect of the funds. Most of the plans spread the money across money market, bonds and stock investments. One of the most popular investment options is target-date funds. This is normally made up of a combination of bonds and stocks that are geared to become more conservative as the retirement age is reached.
There are distinct benefits linked to 401K retirement plans. The first is the tax advantage. You will not be taxed on the interest, dividends and capital gains until the amount is withdrawn. During this time period, you will have the benefit of gaining compounded income from your account. If you join a plan at a fairly young age, this can make a huge difference to your total savings.
Another benefit is that your employer usually contributes a certain amount to your plan as well. The rates may vary, but there are employers who are prepared to match an amount of 6% of your salary to your fund.
A benefit of this type of fund is that you are able to transfer the full value from employer to employer. You could also choose to leave the invested amount in the fund of your past employer, however, this option could incur fees which would affect the final amount you receive. An alternative would be to transfer the available funds to the plan offered by your new employer. You may only be able to do this if you have another job offer prior to leaving your current employer.
The decision to choose a rollover depends on the investment options available with the new plan. If you are not satisfied with the options available to you, you could opt to roll the funds over to an individual annuity. In the event that you do not wish to, or do not have the options to rollover, you can choose to withdraw the proceeds. At this point, you will be required to pay taxes and a penalty fee.
There are many options available to 401K retirement plans and how you invest your money. The options available to you when you leave your current employer should be considered carefully. Your only target should be to retain as much of the funds as possible and to re-invest it in a plan that matches your retirement aims.
In the past, employees were usually offered the option to join pension funds. These were normally managed by the employer and a regular, periodic amount would be paid to the employee during their retirement years. This option may still be accessible to those who are employed by government agencies and the unions. The main reason for the move to 401K plans was the costs of maintaining pension funds.
The option of 401K plans allows workers to save and invest a portion of their wages before it is taxed. Tax is levied when the money is withdrawn from the plan. The worker has some form of control over the investment aspect of the funds. Most of the plans spread the money across money market, bonds and stock investments. One of the most popular investment options is target-date funds. This is normally made up of a combination of bonds and stocks that are geared to become more conservative as the retirement age is reached.
There are distinct benefits linked to 401K retirement plans. The first is the tax advantage. You will not be taxed on the interest, dividends and capital gains until the amount is withdrawn. During this time period, you will have the benefit of gaining compounded income from your account. If you join a plan at a fairly young age, this can make a huge difference to your total savings.
Another benefit is that your employer usually contributes a certain amount to your plan as well. The rates may vary, but there are employers who are prepared to match an amount of 6% of your salary to your fund.
A benefit of this type of fund is that you are able to transfer the full value from employer to employer. You could also choose to leave the invested amount in the fund of your past employer, however, this option could incur fees which would affect the final amount you receive. An alternative would be to transfer the available funds to the plan offered by your new employer. You may only be able to do this if you have another job offer prior to leaving your current employer.
The decision to choose a rollover depends on the investment options available with the new plan. If you are not satisfied with the options available to you, you could opt to roll the funds over to an individual annuity. In the event that you do not wish to, or do not have the options to rollover, you can choose to withdraw the proceeds. At this point, you will be required to pay taxes and a penalty fee.
There are many options available to 401K retirement plans and how you invest your money. The options available to you when you leave your current employer should be considered carefully. Your only target should be to retain as much of the funds as possible and to re-invest it in a plan that matches your retirement aims.
About the Author:
You can visit wakefinancial.com for more helpful information about Choices Regarding 401K Retirement Plans.
No comments:
Post a Comment